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SILGAN HOLDINGS INC - Quarter Report: 2022 June (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________

Commission file number  000-22117
SILGAN HOLDINGS INC.
(Exact name of Registrant as specified in its charter)
Delaware06-1269834
(State or other jurisdiction(I.R.S. Employer
of incorporation or organization)Identification No.)
  
4 Landmark Square 
Stamford,Connecticut06901
(Address of principal executive offices)(Zip Code)
(203) 975-7110
(Registrant's telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareSLGNNew York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒   No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  Yes ☒   No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒
           Accelerated filer☐
Non-accelerated filer☐
           Smaller reporting company☐
           Emerging growth company☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐   No ☒

As of July 29, 2022, the number of shares outstanding of the Registrant’s common stock was 110,215,515.
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SILGAN HOLDINGS INC.
 
TABLE OF CONTENTS
  
 Page No.
  
  
  
  
 
  
  
  
  
  
 
  
 
 
  

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Part I. Financial Information
Item 1. Financial Statements

SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, 2022June 30, 2021Dec. 31, 2021
 (unaudited)(unaudited) 
Assets   
Current assets:   
Cash and cash equivalents$247,843 $164,821 $631,439 
Trade accounts receivable, net931,282 891,812 711,332 
Inventories1,253,894 907,805 798,837 
Prepaid expenses and other current assets120,133 88,818 154,241 
Total current assets2,553,152 2,053,256 2,295,849 
Property, plant and equipment, net1,932,805 1,832,885 1,993,877 
Goodwill1,966,136 1,719,815 2,038,408 
Other intangible assets, net785,976 609,882 830,772 
Other assets, net636,430 508,481 611,940 
 $7,874,499 $6,724,319 $7,770,846 
Liabilities and Stockholders’ Equity   
Current liabilities:   
Revolving loans and current portion of long-term debt$718,695 $240,859 $20,251 
Trade accounts payable880,862 727,523 1,133,318 
Accrued payroll and related costs109,211 112,270 109,279 
Accrued liabilities251,271 234,503 245,674 
Total current liabilities1,960,039 1,315,155 1,508,522 
Long-term debt3,367,469 3,176,393 3,772,926 
Deferred income taxes430,147 360,027 435,252 
Other liabilities491,381 484,164 491,450 
Stockholders’ equity:   
Common stock1,751 1,751 1,751 
Paid-in capital331,877 314,873 325,448 
Retained earnings2,833,431 2,531,783 2,691,745 
Accumulated other comprehensive loss(308,216)(263,433)(259,828)
Treasury stock(1,233,380)(1,196,394)(1,196,420)
Total stockholders’ equity1,625,463 1,388,580 1,562,696 
 $7,874,499 $6,724,319 $7,770,846 

See accompanying notes.
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SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended June 30, 2022 and 2021
(Dollars and shares in thousands, except per share amounts)
(Unaudited)

Three Months EndedSix Months Ended
 June 30, 2022June 30, 2021June 30, 2022June 30, 2021
   
Net sales$1,543,781 $1,348,661 $2,985,667 $2,586,771 
Cost of goods sold1,269,855 1,113,777 2,478,288 2,130,421 
Gross profit273,926 234,884 507,379 456,350 
Selling, general and administrative expenses123,830 94,394 223,841 191,773 
Rationalization charges3,428 354 4,807 10,711 
Other pension and postretirement income(11,349)(12,818)(22,678)(25,637)
Income before interest and income taxes158,017 152,954 301,409 279,503 
Interest and other debt expense before loss on
    early extinguishment of debt		28,660 26,406 58,009 52,829 
Loss on early extinguishment of debt
— — 1,481 883 
Interest and other debt expense28,660 26,406 59,490 53,712 
Income before income taxes129,357 126,548 241,919 225,791 
Provision for income taxes36,682 32,072 64,369 58,034 
Net income$92,675 $94,476 $177,550 $167,757 
Earnings per share:
Basic net income per share$0.84 $0.86 $1.60 $1.52 
Diluted net income per share$0.83 $0.85 $1.59 $1.51 
Weighted average number of shares:
Basic110,840 110,442 110,750 110,323 
Effect of dilutive securities388 661 590 743 
Diluted111,228 111,103 111,340 111,066 

See accompanying notes.

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 SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months ended June 30, 2022 and 2021
(Dollars in thousands)
(Unaudited)

Three Months EndedSix Months Ended
 June 30, 2022June 30, 2021June 30, 2022June 30, 2021
Net income$92,675 $94,476 $177,550 $167,757 
  Other comprehensive income (loss), net of tax:
  Changes in net prior service credit and actuarial losses539 1,876 1,038 3,754 
  Change in fair value of derivatives(60)828 2,277 1,469 
  Foreign currency translation(64,053)25,669 (51,703)(7,703)
Other comprehensive (loss) income (63,574)28,373 (48,388)(2,480)
Comprehensive income $29,101 $122,849 $129,162 $165,277 
 
See accompanying notes.
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 SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2022 and 2021
(Dollars in thousands)
(Unaudited)

 20222021
Cash flows provided by (used in) operating activities:  
Net income$177,550 $167,757 
Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:		  
Depreciation and amortization136,790 122,386 
Rationalization charges4,807 10,711 
Stock compensation expense8,870 10,337 
Loss on early extinguishment of debt1,481 883 
Other changes that provided (used) cash, net of effects from acquisitions:  
Trade accounts receivable, net(243,261)(277,768)
Inventories(475,171)(233,815)
Trade accounts payable15,331 31,825 
Accrued liabilities15,914 (24,316)
Other, net5,753 (17,313)
Net cash used in operating activities(351,936)(209,313)
Cash flows provided by (used in) investing activities:  
Purchase of businesses, net of cash acquired(1,333)2,305 
Capital expenditures(118,357)(123,604)
Other, net(688)4,914 
Net cash used in investing activities(120,378)(116,385)
Cash flows provided by (used in) financing activities:  
Borrowings under revolving loans753,657 318,141 
Repayments under revolving loans(54,815)(105,856)
Proceeds from issuance of long-term debt— 499,725 
Repayments of long-term debt(300,000)(500,000)
Changes in outstanding checks - principally vendors(225,863)(84,216)
Dividends paid on common stock(36,680)(31,564)
Debt issuance costs— (4,905)
Repurchase of common stock(39,402)(8,538)
Net cash provided by financing activities96,897 82,787 
Effect of exchange rate changes on cash and cash equivalents(8,179)(1,749)
Cash and cash equivalents:  
Net decrease(383,596)(244,660)
Balance at beginning of year631,439 409,481 
Balance at end of period$247,843 $164,821 
Interest paid, net$59,297 $48,026 
Income taxes paid, net28,881 47,297 

See accompanying notes.
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SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three and six months ended June 30, 2022 and 2021
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
 

Three Months EndedSix Months Ended
June 30, 2022June 30, 2021June 30, 2022June 30, 2021
Common stock - shares outstanding
Balance at beginning of period
110,800 110,386 110,410 110,057 
Net issuance of treasury stock for vested restricted stock units65 22 455 351 
Repurchases of common stock
(650)— (650)— 
Balance at end of period
110,215 110,408 110,215 110,408 
Common stock - par value
Balance at beginning and end of period
$1,751 $1,751 $1,751 $1,751 
Paid-in capital
Balance at beginning of period
328,201 309,635 325,448 306,363 
Stock compensation expense
3,991 5,327 8,870 10,337 
Net issuance of treasury stock for vested restricted stock units(315)(89)(2,441)(1,827)
Balance at end of period
331,877 314,873 331,877 314,873 
Retained earnings
Balance at beginning of period
2,758,697 2,452,996 2,691,745 2,395,395 
Net income
92,675 94,476 177,550 167,757 
Dividends declared on common stock
(17,941)(15,689)(35,864)(31,369)
Balance at end of period
2,833,431 2,531,783 2,833,431 2,531,783 
Accumulated other comprehensive loss
Balance at beginning of period
(244,642)(291,806)(259,828)(260,953)
Other comprehensive (loss) income (63,574)28,373 (48,388)(2,480)
Balance at end of period
(308,216)(263,433)(308,216)(263,433)
Treasury stock
Balance at beginning of period
(1,205,768)(1,196,221)(1,196,420)(1,189,683)
Net issuance of treasury stock for vested restricted stock units(1,245)(173)(10,593)(6,711)
Repurchases of common stock
(26,367)— (26,367)— 
Balance at end of period
(1,233,380)(1,196,394)(1,233,380)(1,196,394)
Total stockholders' equity$1,625,463 $1,388,580 $1,625,463 $1,388,580 
Dividends declared on common stock per share$0.16 $0.14 $0.32 $0.28 

See accompanying notes.
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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2022 and 2021 and for the
three and six months then ended is unaudited)


Note 1.               Significant Accounting Policies

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of Silgan Holdings Inc., or Silgan, have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. The results of operations for any interim period are not necessarily indicative of the results of operations for the full year.

The Condensed Consolidated Balance Sheet at December 31, 2021 has been derived from our audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

You should read the accompanying condensed consolidated financial statements in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Note 2.               Revenue

The following tables present our revenues disaggregated by reportable segment and geography as they best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Revenues by segment were as follows:
Three Months EndedSix Months Ended
June 30, 2022June 30, 2021June 30, 2022June 30, 2021
(Dollars in thousands)
Dispensing and Specialty Closures$602,431 $545,768 $1,200,358 $1,055,120 
Metal Containers754,396 624,534 1,405,122 1,178,615 
Custom Containers186,954 178,359 380,187 353,036 
$1,543,781 $1,348,661 $2,985,667 $2,586,771 

Revenues by geography were as follows:
Three Months EndedSix Months Ended
June 30, 2022June 30, 2021June 30, 2022June 30, 2021
(Dollars in thousands)
North America$1,154,614 $968,497 $2,240,838 $1,866,899 
Europe and other389,167 380,164 744,829 719,872 
$1,543,781 $1,348,661 $2,985,667 $2,586,771 

Our contract assets primarily consist of unbilled accounts receivable related to over time revenue recognition and were $110.3 million, $92.6 million, and $78.2 million as of June 30, 2022 and 2021 and December 31, 2021, respectively. Unbilled receivables are included in trade accounts receivable, net on our Condensed Consolidated Balance Sheets.



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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2022 and 2021 and for the
three and six months then ended is unaudited)

Note 3.               Rationalization Charges

We continually evaluate cost reduction opportunities across each of our segments, including rationalizations of our existing facilities through plant closings and downsizings. We use a disciplined approach to identify opportunities that generate attractive cash returns. Rationalization charges by segment were as follows:
Three Months EndedSix Months Ended
June 30, 2022June 30, 2021June 30, 2022June 30, 2021
 (Dollars in thousands)
Dispensing and Specialty Closures$— $67 $— $5,298 
Metal Containers3,428 225 4,702 5,246 
Custom Containers— 62 105 167 
 $3,428 $354 $4,807 $10,711 

Activity in reserves for our rationalization plans were as follows:
Employee
Severance
and Benefits		Plant
Exit
Costs		Non-Cash
Asset
Write-Down		Total
 (Dollars in thousands)
Balance at December 31, 2021
$41,090 $157 $— $41,247 
Charged to expense3,833 737 237 4,807 
Utilized and currency translation(3,519)(737)(237)(4,493)
Balance at June 30, 2022
$41,404 $157 $— $41,561 

Non-cash asset write-downs were the result of comparing the carrying value of certain production related assets to their fair value using estimated future discounted cash flows, a Level 3 fair value measurement (see Note 7 for information regarding a Level 3 fair value measurement).

Rationalization reserves as of June 30, 2022 were recorded in our Condensed Consolidated Balance Sheet as accrued liabilities of $5.0 million and other liabilities of $36.6 million. Excluding the impact of our withdrawal from the Central States, Southeast and Southwest Areas Pension Plan, or the Central States Pension Plan, in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $3.8 million and $7.4 million, respectively. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $0.9 million per year and be recognized annually through 2040, and remaining cash expenditures for the withdrawal liability related to the Central States Pension Plan are expected to be approximately $3.1 million annually through 2040.



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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2022 and 2021 and for the
three and six months then ended is unaudited)

Note 4.               Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is reported in our Condensed Consolidated Statements of Stockholders’ Equity.  Amounts included in accumulated other comprehensive loss, net of tax, were as follows:
 
Unrecognized Net
Defined Benefit
Plan Costs		Change in Fair
Value of
Derivatives		Foreign
Currency
Translation		Total
 (Dollars in thousands)
Balance at December 31, 2021
$(119,474)$(2,327)$(138,027)$(259,828)
Other comprehensive loss before reclassifications— 2,257 (51,703)(49,446)
Amounts reclassified from accumulated other
    comprehensive loss
1,038 20 — 1,058 
 Other comprehensive loss1,038 2,277 (51,703)(48,388)
Balance at June 30, 2022
$(118,436)$(50)$(189,730)$(308,216)
 
The amounts reclassified to earnings from the unrecognized net defined benefit plan costs component of accumulated other comprehensive loss for the three and six months ended June 30, 2022 were net (losses) of $(0.7) million and $(1.4) million, respectively, excluding income tax benefits of $0.2 million and $0.4 million, respectively. For the three and six months ended June 30, 2022, these net (losses) consisted of amortization of net actuarial (losses) of $(1.1) million and $(2.2) million and amortization of net prior service credit of $0.4 million and $0.8 million, respectively. Amortization of net actuarial losses and net prior service credit was recorded in other pension and postretirement income in our Condensed Consolidated Statements of Income. See Note 9 for further information.

The amounts reclassified to earnings from the change in fair value of derivatives component of accumulated other comprehensive loss for the three and six months ended June 30, 2022 were not significant.

Other comprehensive loss before reclassifications related to foreign currency translation for the three and six months ended June 30, 2022 consisted of (i) foreign currency (losses) related to translation of quarter end financial statements of foreign subsidiaries utilizing a functional currency other than the U.S. dollar of $(88.7) million and $(85.6) million, respectively, (ii) foreign currency gains related to intra-entity foreign currency transactions that are of a long-term investment nature of $1.1 million and $1.9 million, respectively, and (iii) foreign currency gains related to our net investment hedges of $30.8 million and $42.0 million, respectively, excluding income tax (provisions) of $(7.3) million and $(10.0) million, respectively. See Note 7 for further discussion.



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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2022 and 2021 and for the
three and six months then ended is unaudited)

Note 5.               Inventories

Inventories consisted of the following: 
June 30, 2022June 30, 2021Dec. 31, 2021
 (Dollars in thousands)
Raw materials$362,950 $302,719 $394,102 
Work-in-process255,249 164,655 157,406 
Finished goods807,219 534,522 394,378 
Other16,881 15,497 15,731 
 1,442,299 1,017,393 961,617 
Adjustment to value inventory at cost on the LIFO method(188,405)(109,588)(162,780)
 $1,253,894 $907,805 $798,837 

During the three and six months ended June 30, 2022, we implemented an inventory management program which resulted in permanent reductions of inventories valued under the last-in, first-out basis. This resulted in liquidations of inventory layers carried at costs prevailing in prior years and thereby decreased cost of goods sold by $7.3 million for both periods.

Note 6.               Long-Term Debt

Long-term debt consisted of the following: 
June 30, 2022June 30, 2021Dec. 31, 2021
 (Dollars in thousands)
Bank debt   
Bank revolving loans$675,000 $195,859 $— 
U.S. term loans1,000,000 400,000 1,000,000 
Other foreign bank revolving and term loans61,364 47,132 38,862 
Total bank debt1,736,364 642,991 1,038,862 
4¾% Senior Notes
— 300,000 300,000 
3¼% Senior Notes
679,510 770,835 739,180 
4⅛% Senior Notes600,000 600,000 600,000 
2¼% Senior Notes522,700 592,950 568,600 
1.4% Senior Secured Notes500,000 500,000 500,000 
Finance leases66,938 33,460 68,730 
Total debt - principal4,105,512 3,440,236 3,815,372 
Less unamortized debt issuance costs and debt discount19,348 22,984 22,195 
Total debt4,086,164 3,417,252 3,793,177 
Less current portion718,695 240,859 20,251 
 $3,367,469 $3,176,393 $3,772,926 


At June 30, 2022, the current portion of long-term debt consisted of $675.0 million of bank revolving loans under our amended and restated senior secured credit facility, as amended, or the Credit Agreement, $41.0 million of other foreign bank revolving and term loans and $2.7 million of finance leases.


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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2022 and 2021 and for the
three and six months then ended is unaudited)

On March 28, 2022, we redeemed all $300.0 million aggregate principal amount of our outstanding 4¾% Senior Notes due 2025, or the 4¾% Notes, at a redemption price of 100 percent of their principal amount plus accrued and unpaid interest to the redemption date. We funded this redemption with revolving loan borrowings under the Credit Agreement and cash on hand. As a result of this redemption, we recorded a pre-tax charge for the loss on early extinguishment of debt of $1.5 million during the first quarter of 2022 for the write-off of unamortized debt issuance costs.

Note 7.               Financial Instruments

The financial instruments recorded in our Condensed Consolidated Balance Sheets include cash and cash equivalents, trade accounts receivable, trade accounts payable, debt obligations and swap agreements. Due to their short-term maturity, the carrying amounts of trade accounts receivable and trade accounts payable approximate their fair market values. The following table summarizes the carrying amounts and estimated fair values of our other financial instruments at June 30, 2022:

Carrying
Amount		Fair
Value
 (Dollars in thousands)
Assets:  
Cash and cash equivalents$247,843 $247,843 
Liabilities:  
Bank debt$1,736,364 $1,736,364 
3¼% Senior Notes679,510 643,496 
4⅛% Senior Notes599,258 538,020 
2¼% Senior Notes522,700 412,828 
1.4% Senior Secured Notes499,797 447,200 

Fair Value Measurements

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). GAAP classifies the inputs used to measure fair value into a hierarchy consisting of three levels. Level 1 inputs represent unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 inputs represent unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs represent unobservable inputs for the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Financial Instruments Measured at Fair Value

The financial assets and liabilities that were measured on a recurring basis at June 30, 2022 consisted of our cash and cash equivalents and derivative instruments. We measured the fair value of cash and cash equivalents using Level 1 inputs. We measured the fair value of our derivative instruments using the income approach. The fair value of our derivative instruments reflects the estimated amounts that we would pay or receive based on the present value of the expected cash flows derived from market interest rates and prices. As such, these derivative instruments were classified within Level 2.

Financial Instruments Not Measured at Fair Value

Our bank debt, 3¼% Senior Notes, 4⅛% Senior Notes, 2¼% Senior Notes and 1.4% Senior Secured Notes were recorded at historical amounts in our Condensed Consolidated Balance Sheets, as we have not elected to measure them at fair value. We measured the fair value of our variable rate bank debt using the market approach based on Level 2 inputs. Fair values of the 3¼% Senior Notes, 4⅛% Senior Notes, 2¼% Senior Notes and 1.4% Senior Secured Notes were estimated based on quoted market prices, a Level 1 input.

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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2022 and 2021 and for the
three and six months then ended is unaudited)

Derivative Instruments and Hedging Activities

Our derivative financial instruments were recorded in the Condensed Consolidated Balance Sheets at their fair values. Changes in fair values of derivatives are recorded in each period in earnings or comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction.

We utilize certain derivative financial instruments to manage a portion of our interest rate and natural gas cost exposures. We generally limit our use of derivative financial instruments to interest rate and natural gas swap agreements. We do not engage in trading or other speculative uses of these financial instruments. For a financial instrument to qualify as a hedge, we must be exposed to interest rate or price risk, and the financial instrument must reduce the exposure and be designated as a hedge. Financial instruments qualifying for hedge accounting must maintain a high correlation between the hedging instrument and the item being hedged, both at inception and throughout the hedged period.

We also utilize certain internal hedging strategies to minimize our foreign currency exchange rate risk. Net investment hedges that qualify for hedge accounting result in the recognition of foreign currency gains or losses, net of tax, in accumulated other comprehensive loss. 

Interest Rate Swap Agreements

We have entered into two U.S. dollar interest rate swap agreements, each for $50.0 million notional principal amount, to manage a portion of our exposure to interest rate fluctuations. These agreements have a fixed rate of 2.878 percent and mature on March 24, 2023. The difference between amounts to be paid or received on our interest rate swap agreements is recorded in interest and other debt expense in our Condensed Consolidated Statements of Income and was not significant for the three and six months ended June 30, 2022. These agreements are with a financial institution which is expected to fully perform under the terms thereof. The total fair value of our interest rate swap agreements in effect at June 30, 2022 was not significant.

Natural Gas Swap Agreements

We have entered into natural gas swap agreements to manage a portion of our exposure to fluctuations in natural gas prices. The difference between amounts to be paid or received on our natural gas swap agreements is recorded in cost of goods sold in our Condensed Consolidated Statements of Income and was not significant for the three and six months ended June 30, 2022. These agreements are with a financial institution which is expected to fully perform under the terms thereof. The total fair value of our natural gas swap agreements in effect at June 30, 2022 was not significant.

Foreign Currency Exchange Rate Risk

In an effort to minimize our foreign currency exchange rate risk, we have financed acquisitions of foreign operations primarily with borrowings denominated in Euros. In addition, where available, we have borrowed funds in local currency or implemented certain internal hedging strategies to minimize our foreign currency exchange rate risk related to foreign operations, including net investment hedges related to the 3¼% Senior Notes which are Euro denominated. Foreign currency gains related to our net investment hedges included in accumulated other comprehensive loss for the three and six months ended June 30, 2022 were $30.8 million and $42.0 million, respectively.



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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2022 and 2021 and for the
three and six months then ended is unaudited)

Note 8.               Commitments and Contingencies

On July 12, 2022, we announced that we concluded a settlement with the European Commission to end a long-running investigation of our metal packaging operations in Europe. This investigation was started in 2015 by the German antitrust authority and was transferred in 2018 to the European Commission. As part of the settlement, we agreed to pay a fine of $25.2 million to put an end to the investigation, although we do not fully concur with the facts and legal qualifications put forth by the European Commission. The fine will be payable in the fourth quarter of 2022. The European Commission has agreed to close its investigation and not proceed any further with this matter.

We are a party to other legal proceedings, contract disputes and claims arising in the ordinary course of our business. We are not a party to, and none of our properties are subject to, any pending legal proceedings which could have a material adverse effect on our business or financial condition.

Note 9.               Retirement Benefits

The components of the net periodic pension benefit credit were as follows:
Three Months EndedSix Months Ended
June 30, 2022June 30, 2021June 30, 2022June 30, 2021
 (Dollars in thousands)
Service cost$3,270 $3,789 $6,570 $7,577 
Interest cost5,140 4,355 10,299 8,709 
Expected return on plan assets(17,315)(19,850)(34,629)(39,698)
Amortization of prior service cost 53 58 108 116 
Amortization of actuarial losses1,157 3,028 2,312 6,054 
Net periodic benefit credit $(7,695)$(8,620)$(15,340)$(17,242)
 
The components of the net periodic other postretirement benefit credit were as follows:
Three Months EndedSix Months Ended
June 30, 2022June 30, 2021June 30, 2022June 30, 2021
(Dollars in thousands)
Service cost$26 $28 $51 $56 
Interest cost109 95 218 190 
Amortization of prior service credit(416)(457)(832)(913)
Amortization of actuarial gains(77)(47)(154)(95)
Net periodic benefit credit$(358)$(381)$(717)$(762)

Note 10.               Income Taxes

Silgan and its subsidiaries file U.S. Federal income tax returns, as well as income tax returns in various states and foreign jurisdictions. The Internal Revenue Service, or IRS, has completed its review of the 2020 tax year with no change to our filed federal income tax return. We have been accepted into the Compliance Assurance Program for the 2021 and 2022 tax years which provides for the review by the IRS of tax matters relating to our tax return prior to filing.



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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2022 and 2021 and for the
three and six months then ended is unaudited)

Note 11.               Treasury Stock

On March 4, 2022, our Board of Directors authorized the repurchase by us of up to an aggregate of $300.0 million of our common stock by various means from time to time through and including December 31, 2026. During the six months ended June 30, 2022, we repurchased an aggregate of 649,727 shares of our common stock at an average price per share of $40.56, for a total purchase price of $26.4 million. At June 30, 2022, we had approximately $273.6 million remaining under this authorization for the repurchase of our common stock.

During the first six months of 2022, we issued 765,917 treasury shares which had an average cost of $3.19 per share for restricted stock units that vested during the period. In accordance with the Silgan Holdings Inc. Amended and Restated 2004 Stock Incentive Plan, we repurchased 310,904 shares of our common stock at an average cost of $41.92 to satisfy minimum employee withholding tax requirements resulting from the vesting of such restricted stock units.

We account for treasury shares using the first-in, first-out (FIFO) cost method. As of June 30, 2022, 64,896,981 shares of our common stock were held in treasury.

Note 12.             Stock-Based Compensation

We currently have one stock-based compensation plan in effect under which we have issued options and restricted stock units to our officers, other key employees and outside directors. During the first six months of 2022, 429,731 restricted stock units were granted to certain of our officers, other key employees and outside directors. The fair value of these restricted stock units at the grant date was $17.9 million, which is being amortized ratably over the respective vesting period from the grant date.



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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2022 and 2021 and for the
three and six months then ended is unaudited)

Note 13.             Segment Information

Reportable segment information was as follows:
Dispensing and Specialty ClosuresMetal
Containers		Custom
Containers		CorporateTotal
 (Dollars in thousands)
Three Months Ended June 30, 2022     
Net sales$602,431 $754,396 $186,954 $— $1,543,781 
Depreciation and amortization(1)
36,541 19,874 9,934 39 66,388 
Rationalization charges— 3,428 — — 3,428 
Segment income (2)
91,349 66,358 30,890 (30,580)158,017 
Three Months Ended June 30, 2021     
Net sales$545,768 $624,534 $178,359 $— $1,348,661 
Depreciation and amortization(1)
29,101 21,329 9,632 42 60,104 
Rationalization charges67 225 62 — 354 
Segment income 73,836 58,635 27,244 (6,761)152,954 
Six Months Ended June 30, 2022     
Net sales$1,200,358 $1,405,122 $380,187 $— $2,985,667 
Depreciation and amortization(1)
73,160 40,938 19,817 81 133,996 
Rationalization charges— 4,702 105 — 4,807 
Segment income (2)
178,662 104,367 55,584 (37,204)301,409 
Six Months Ended June 30, 2021     
Net sales$1,055,120 $1,178,615 $353,036 $— $2,586,771 
Depreciation and amortization(1)
57,991 42,578 19,005 81 119,655 
Rationalization charges5,298 5,246 167 — 10,711 
Segment income 139,481 104,249 51,730 (15,957)279,503 
_____________

(1)Depreciation and amortization excludes amortization of debt discount and debt issuance costs of $1.3 million and $1.4 million for the three months ended June 30, 2022 and 2021, respectively, and $2.8 million and $2.7 million for the six months ended June 30, 2022 and 2021, respectively.
(2)Corporate includes a charge of $25.2 million for the settlement with the European Commission for each of the three and six months ended June 30, 2022.

Total segment income is reconciled to income before income taxes as follows:
Three Months EndedSix Months Ended
June 30, 2022June 30, 2021June 30, 2022June 30, 2021
 (Dollars in thousands)
Total segment income $158,017 $152,954 $301,409 $279,503 
Interest and other debt expense28,660 26,406 59,490 53,712 
Income before income taxes$129,357 $126,548 $241,919 $225,791 

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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2022 and 2021 and for the
three and six months then ended is unaudited)

Sales and segment income of our metal containers segment and of part of our dispensing and specialty closures segment are dependent, in part, upon the vegetable and fruit harvests in the United States and, to a lesser extent, in a variety of national growing regions in Europe. The size and quality of these harvests varies from year to year, depending in large part upon the weather conditions in applicable regions. Because of the seasonality of the harvests, we have historically experienced higher unit sales volume in the third quarter of our fiscal year and generated a disproportionate amount of our annual segment income during that quarter.

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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q that are not historical facts are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and Securities Exchange Act of 1934, as amended.  Such forward-looking statements are made based upon management’s expectations and beliefs concerning future events impacting us and therefore involve a number of uncertainties and risks, including, but not limited to, those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and in our other filings with the Securities and Exchange Commission.  As a result, the actual results of our operations or our financial condition could differ materially from those expressed or implied in these forward-looking statements.
 

General

We are a leading manufacturer of sustainable rigid packaging solutions for consumer goods products.  We currently produce dispensing and specialty closures for food, beverage, health care, garden, home, personal care, fragrance and beauty products; steel and aluminum containers for human and pet food and general line products; and custom designed plastic containers for personal care, food, health care, pharmaceutical, household and industrial chemical, pet food and care, agricultural, automotive and marine chemical products. We are a leading worldwide manufacturer of dispensing and specialty closures, a leading manufacturer of metal containers in North America and Europe, and a leading manufacturer of custom containers in North America for a variety of markets, including the personal care, food, health care and household and industrial chemical markets.

Our objective is to increase shareholder value by efficiently deploying capital and management resources to grow our business, reduce operating costs and build sustainable competitive positions, or franchises, and to complete acquisitions that generate attractive cash returns.  We have grown our net sales and income from operations largely through acquisitions but also through internal growth, and we continue to evaluate acquisition opportunities in the consumer goods packaging market.  If acquisition opportunities are not identified over a longer period of time, we may use our cash flow to repay debt, repurchase shares of our common stock or increase dividends to our stockholders or for other permitted purposes.








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RESULTS OF OPERATIONS

The following table sets forth certain unaudited income statement data expressed as a percentage of net sales for the periods presented:
Three Months EndedSix Months Ended
June 30, 2022June 30, 2021June 30, 2022June 30, 2021
Net sales
Dispensing and Specialty Closures39.0 %40.5 %40.2 %40.8 %
Metal Containers48.9 46.3 47.1 45.6 
Custom Containers12.1 13.2 12.7 13.6 
Consolidated100.0 100.0 100.0 100.0 
Cost of goods sold82.3 82.6 83.0 82.4 
Gross profit17.7 17.4 17.0 17.6 
Selling, general and administrative expenses8.0 7.0 7.5 7.4 
Rationalization charges0.2 — 0.2 0.4 
Other pension and postretirement income(0.7)(0.9)(0.8)(1.0)
Income before interest and income taxes10.2 11.3 10.1 10.8 
Interest and other debt expense1.8 1.9 2.0 2.1 
Income before income taxes8.4 9.4 8.1 8.7 
Provision for income taxes2.4 2.4 2.2 2.2 
Net income6.0 %7.0 %5.9 %6.5 %

Summary unaudited results of operations for the periods presented are provided below.
Three Months EndedSix Months Ended
 June 30, 2022June 30, 2021June 30, 2022June 30, 2021
(dollars in millions)
Net sales  
Dispensing and Specialty Closures$602.4 $545.8 $1,200.4 $1,055.1 
Metal Containers754.4 624.5 1,405.1 1,178.6 
Custom Containers187.0 178.4 380.2 353.1 
Consolidated$1,543.8 $1,348.7 $2,985.7 $2,586.8 
Segment income
Dispensing and Specialty Closures (1)
$91.3 $73.8 $178.7 $139.5 
Metal Containers (2)
66.4 58.6 104.4 104.2 
Custom Containers (3)
30.9 27.2 55.6 51.7 
Corporate (4)
(30.6)(6.6)(37.3)(15.9)
Consolidated$158.0 $153.0 $301.4 $279.5 
 
(1) Includes rationalization charges of $0.1 million and $5.3 million for the three and six months ended June 30, 2021, respectively.
(2) Includes rationalization charges of $3.4 million and $0.2 million for the three months ended June 30, 2022 and 2021, respectively, and $4.7 million and $5.2 million for the six months ended June 30, 2022 and 2021, respectively.
(3) Includes rationalization charges of $0.1 million for the three months ended June 30, 2021 and $0.1 million and $0.2 million for the six months ended June 30, 2022 and 2021, respectively.
(4)    Includes a charge of $25.2 million for the settlement with the European Commission for the three and six months ended June 30, 2022.



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Three Months Ended June 30, 2022 Compared with Three Months Ended June 30, 2021

Overview.  Consolidated net sales were $1.54 billion in the second quarter of 2022, a 14.5 percent increase as compared to the second quarter of 2021 primarily due to higher average selling prices due to the pass through of higher raw material and other inflationary costs across all segments, higher unit volumes in the dispensing and specialty closures segment and a more favorable mix of products sold in the custom containers segment, partially offset by lower unit volumes and a higher percentage of smaller cans sold in the metal containers segment, the impact from unfavorable foreign currency translation and lower volumes in the custom containers segment. Income before interest and income taxes for the second quarter of 2022 was $158.0 million, a $5.0 million increase as compared to the same period in 2021 primarily as a result of higher average selling prices across all segments due to the pass through of higher raw material and other inflationary costs, strong operating performances in each of the segments, the benefit from inventory management programs in the dispensing and specialty closures and metal containers segments, cost recovery of certain customer project expenditures in the dispensing and specialty closures segment, the favorable impact in the current year period from the delayed pass through of lower resin costs as compared to the unfavorable impact in the prior year period from the delayed pass through of higher resin costs in the dispensing and specialty closures and custom containers segments and higher unit volumes in the dispensing and specialty closures segment. These increases were partially offset by inflation in manufacturing costs, higher corporate expenses due to the charge for the settlement with the European Commission in the current year period, lower volumes in the metal containers and custom containers segments, the impact of unfavorable foreign currency translation, the mix impact of more smaller cans sold in the metal containers segment and higher rationalization charges. Results for the second quarters of 2022 and 2021 included rationalization charges of $3.4 million and $0.4 million, respectively. Net income for the second quarter of 2022 was $92.7 million as compared to $94.5 million for the same period in 2021.  Net income per diluted share for the second quarter of 2022 was $0.83 as compared to $0.85 for the same period in 2021.

Net Sales.  The $195.1 million increase in consolidated net sales in the second quarter of 2022 as compared to the second quarter of 2021 was the result of higher net sales across all the segments.

Net sales for the dispensing and specialty closures segment increased $56.6 million, or 10.4 percent, in the second quarter of 2022 as compared to the same period in 2021. This increase was primarily the result of higher average selling prices due to the pass through of higher raw material and other inflationary costs and higher unit volumes of approximately two percent, partially offset by the impact of unfavorable foreign currency translation of approximately $29 million. The increase in unit volumes was principally the result of the inclusion of the recent acquisitions and higher volumes for beauty and fragrance products, partially offset by a decrease in trigger sprayers for garden, hygiene and home cleaning products, which were impacted by further inventory corrections throughout the supply chain, and in closures for certain food and beverage products, which were unfavorably impacted by other supply chain disruptions at certain customers.

Net sales for the metal containers segment increased $129.9 million, or 20.8 percent, in the second quarter of 2022 as compared to the same period in 2021.  This increase was primarily the result of higher average selling prices due to the pass through of higher raw material and other manufacturing costs, partially offset by lower unit volumes of approximately ten percent, the impact of unfavorable foreign currency translation of approximately $14 million and a higher percentage of smaller cans sold. The decrease in unit volumes was principally the result of expected lower volumes of vegetable cans as compared to restocking activity in the prior year period and the impact from customers’ ongoing supply chain, labor and energy challenges in the current year period.

Net sales for the custom containers segment increased $8.6 million, or 4.8 percent, in the second quarter of 2022 as compared to the same period in 2021. This increase was principally due to higher average selling prices which include the pass through of higher resin and other inflationary costs and a more favorable mix of products sold, partially offset by lower volumes of approximately seven percent and the impact of unfavorable foreign currency translation of approximately $1 million. The decline in volumes was primarily for garden, hygiene and home cleaning products principally due to further inventory corrections throughout the supply chain.

Gross Profit.  Gross profit margin increased 0.3 percentage points to 17.7 percent in the second quarter of 2022 as compared to the same period in 2021 for the reasons discussed below in "Income before Interest and Income Taxes."

Selling, General and Administrative Expenses.  Selling, general and administrative expenses as a percentage of consolidated net sales increased to 8.0 percent in the second quarter of 2022 as compared to 7.0 percent in the same period in 2021. Selling, general and administrative expenses increased $29.4 million to $123.8 million for the second quarter of 2022 as compared to $94.4 million for the same period in 2021. The increase in selling, general and administrative expenses was principally the result of a charge of $25.2 million for the settlement with the European Commission and the inclusion of selling, general and administrative expenses from the operations acquired in the third and fourth quarters of 2021.
-20-


Income before Interest and Income Taxes.  Income before interest and income taxes for the second quarter of 2022 increased by $5.0 million as compared to the second quarter of 2021, while margins decreased to 10.2 percent from 11.3 percent over the same periods. The increase in income before interest and income taxes was primarily the result of higher income in all of the segments, partially offset by higher corporate expenses due to the $25.2 million settlement with the European Commission and higher rationalization charges. Rationalization charges were $3.4 million and $0.4 million in the second quarters of 2022 and 2021, respectively.

Segment income of the dispensing and specialty closures segment for the second quarter of 2022 increased $17.5 million as compared to the same period in 2021, and segment income margin increased to 15.2 percent from 13.5 percent over the same periods.  The increase in segment income was primarily due to higher average selling prices due to the pass through of inflationary costs, strong operating performance including the benefit of an inventory management program to significantly reduce working capital, cost recovery for certain customer project expenditures, the favorable impact in the current year period from the delayed pass through of lower resin costs as compared to the unfavorable impact in the prior year period from the delayed pass through of higher resin costs and higher unit volumes, partially offset by inflation in manufacturing costs and the impact of unfavorable foreign currency translation.

Segment income of the metal containers segment for the second quarter of 2022 increased $7.8 million as compared to the same period in 2021, while segment income margin decreased to 8.8 percent from 9.4 percent over the same periods. The increase in segment income was due primarily to higher average selling prices as a result of the pass through of inflationary costs and strong operating performance including the benefit from inventory management, partially offset by inflation in manufacturing costs, lower unit volumes, the mix impact of more smaller cans sold, higher rationalization charges and the impact of unfavorable foreign currency translation. The decrease in segment income margin was primarily due to the mathematical consequence of the pass through of inflation in raw material and other manufacturing costs in the second quarter of 2022. Rationalization charges were $3.4 million and $0.2 million in the second quarters of 2022 and 2021, respectively.

Segment income of the custom containers segment for the second quarter of 2022 increased $3.7 million as compared to the same period in 2021, and segment income margin increased to 16.5 percent from 15.2 percent over the same periods.  The increase in segment income was primarily attributable to higher average selling prices due to the pass through of inflationary costs, strong operating performance and the favorable impact in the current year period from the delayed pass through of lower resin costs as compared to the unfavorable impact in the prior year period from the delayed pass through of higher resin costs, partially offset by inflation in manufacturing costs and lower volumes.

Interest and Other Debt Expense. Interest and other debt expense before loss on early extinguishment of debt for the second quarter of 2022 increased $2.3 million to $28.7 million as compared to $26.4 million in the same period in 2021. This increase was primarily due to higher weighted average outstanding borrowings during the quarter as a result of the acquisitions completed in the third and fourth quarters of 2021, partially offset by lower weighted average interest rates as a result of the redemption of the 4¾% Notes with proceeds from revolving loan borrowings under the Credit Agreement and cash on hand.

Provision for Income Taxes. The effective tax rates were 28.4 percent and 25.3 percent for the second quarters of 2022 and 2021, respectively. The effective tax rate in the second quarter of 2022 was unfavorably impacted by the non-deductible settlement with the European Commission.


Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021

Overview.  Consolidated net sales were $2.99 billion in the first six months of 2022, a 15.4 percent increase as compared to the first six months of 2021 primarily as a result of higher average selling prices across all segments principally related to the pass through of higher raw material and other inflationary costs, higher unit volumes in the dispensing and specialty closures segment and a more favorable mix of products sold in the custom containers segment, partially offset by lower volumes in the metal containers and custom containers segments, the impact of unfavorable foreign currency translation and a higher percentage of smaller cans sold in the metal containers segment. Income before interest and income taxes for the first six months of 2022 increased by $21.9 million as compared to the same period in 2021 primarily due to higher average selling prices across all segments principally due to the pass through of higher raw material and other inflationary costs, strong operating performances in each of the segments, the benefits from inventory management programs in the dispensing and specialty closures and metal containers segments, the favorable impact from the delayed pass through of lower resin costs in the current year period as compared to the unfavorable impact in the prior year period from the delayed pass through of higher resin costs in the dispensing and specialty closures and custom containers segments, higher unit volumes in the dispensing and specialty closures segment, cost recovery for certain customer project expenditures in the dispensing and specialty closures
-21-


segment and lower rationalization charges. These increases were partially offset by inflation in manufacturing costs, lower volumes in the metal containers and custom containers segments, higher corporate expenses due to the charge for the settlement with the European Commission in the current year period, the mix impact of more smaller cans sold in the metal containers segment and the impact of unfavorable foreign currency translation. Results for the first six months of 2022 and 2021 included rationalization charges of $4.8 million and $10.7 million, respectively, and a loss on early extinguishment of debt of $1.5 million and $0.9 million, respectively. Net income for the first six months of 2022 was $177.6 million as compared to $167.8 million for the same period in 2021. Net income per diluted share for the first six months of 2022 was $1.59 as compared to $1.51 for the same period in 2021.

Net Sales.  The $398.9 million increase in consolidated net sales in the first six months of 2022 as compared to the first six months of 2021 was the result of higher net sales across all the segments.

Net sales for the dispensing and specialty closures segment increased $145.3 million, or 13.8 percent, in the first six months of 2022 as compared to the same period in 2021. This increase was primarily the result of higher average selling prices related to the pass through of higher raw material and other inflationary costs and higher unit volumes of approximately four percent, partially offset by the impact of unfavorable foreign currency translation of approximately $44 million. The increase in unit volumes was principally the result of the inclusion of volumes from the recent acquisitions and higher volumes for beauty and fragrance products, partially offset by a decrease in volumes for garden, hygiene and home cleaning products, which were impacted by further inventory corrections throughout the supply chain, and for closures as a result of customer pre-buy activity in late 2021 in advance of significant metal inflation this year and other supply chain disruptions at certain customers.

Net sales for the metal containers segment increased $226.5 million, or 19.2 percent, in the first six months of 2022 as compared to the same period in 2021. This increase was primarily the result of higher average selling prices related to the pass through of higher raw material and other manufacturing costs, partially offset by lower unit volumes of approximately twelve percent, the impact of unfavorable foreign currency translation of approximately $21 million and a higher percentage of smaller cans sold. The decrease in unit volumes was primarily due to the impact of the customer pre-buy activity in late 2021 in advance of significant price increases due to unprecedented metal inflation this year, lower volumes of vegetable cans as compared to restocking activity in the prior year period and customers' ongoing supply chain, labor and energy challenges in the current year period.

Net sales for the custom containers segment increased $27.1 million, or 7.7 percent, in the first six months of 2022 as compared to the same period in 2021. This increase was primarily due to higher average selling prices which include the pass through of higher resin and other inflationary costs and a more favorable mix of products sold, partially offset by lower volumes of approximately eight percent and the impact of unfavorable foreign currency translation of approximately $1 million. The decrease in volumes was primarily due to higher volumes in the prior year period as a result of strong pandemic driven demand and subsequent inventory corrections throughout the supply chain in the current year period.

Gross Profit.  Gross profit margin decreased 0.6 percentage points to 17.0 percent in the first six months of 2022 as compared to the same period in 2021 for the reasons discussed below in "Income before Interest and Income Taxes".

Selling, General and Administrative Expenses.  Selling, general and administrative expenses as a percentage of consolidated net sales increased to 7.5 percent for the first six months of 2022 as compared to 7.4 percent in the same period in 2021. Selling, general and administrative expenses increased $32.0 million to $223.8 million for the first six months of 2022 as compared to $191.8 million for the same period in 2021. The increase in selling, general and administrative expenses was principally the result of a charge of $25.2 million for the settlement with the European Commission and the inclusion of selling, general and administrative expenses from the operations acquired in the third and fourth quarters of 2021.

Income before Interest and Income Taxes.  Income before interest and income taxes for the first six months of 2022 increased by $21.9 million as compared to the first six months of 2021, while margins decreased to 10.1 percent from 10.8 percent over the same periods. The increase in income before interest and income taxes was primarily due to higher income across all the segments and lower rationalization charges, partially offset by higher corporate expenses due to the $25.2 million settlement with the European Commission. Rationalization charges were $4.8 million and $10.7 million for the first six months of 2022 and 2021, respectively.

Segment income of the dispensing and specialty closures segment for the first six months of 2022 increased $39.2 million as compared to the same period in 2021, and segment income margin increased to 14.9 percent from 13.2 percent over the same period. The increase in segment income was due primarily to higher average selling prices principally as a result of the pass through of higher raw material and other inflationary costs, strong operating performance including the benefit from an inventory management program, the favorable impact from the delayed pass through of lower resin costs in the current year
-22-


period as compared to the unfavorable impact in the prior year period from the delayed pass through of higher resin costs, higher unit volumes, cost recovery for certain customer project expenditures and lower rationalization charges, partially offset by inflation in manufacturing costs and the impact of unfavorable foreign currency translation. Rationalization charges were $5.3 million in the first six months of 2021.

Segment income of the metal containers segment for the first six months of 2022 increased $0.2 million as compared to the same period in 2021, while segment income margin decreased to 7.4 percent from 8.8 percent over the same periods. The increase in segment income was primarily attributable to higher average selling prices due to the pass through of higher raw material and other inflationary costs, strong operating performance including the benefit from an inventory management program and lower rationalization charges, partially offset by inflation in manufacturing costs, lower unit volumes, the mix impact of more smaller cans sold and the impact of unfavorable foreign currency translation. The decrease in segment income margin was primarily due to the mathematical consequence of the pass through of inflation in raw material and other manufacturing costs. Rationalization charges were $4.7 million and $5.2 million in the first six months of 2022 and 2021, respectively.

Segment income of the custom containers segment for the first six months of 2022 increased $3.9 million as compared to the same period in 2021, and segment income margin remained unchanged at 14.6 percent over the same periods. The increase in segment income was primarily attributable higher average selling prices principally due to the pass through of higher raw material and other inflationary costs, strong operating performance and the favorable impact from the delayed pass through of lower resin costs in the current year period as compared to the unfavorable impact of the delayed pass through of higher resin costs in the prior year period, partially offset by inflation in manufacturing costs and lower volumes.

Interest and Other Debt Expense. Interest and other debt expense before loss on early extinguishment of debt for the first six months of 2022 increased $5.2 million to $58.0 million as compared to $52.8 million in the same period in 2021 principally due to higher weighted average outstanding borrowings as a result of the acquisitions completed in 2021, partially offset by lower weighted average interest rates as a result of the redemption of the 4¾% Notes with proceeds from revolving loan borrowings under the Credit Agreement and cash on hand. In March 2022, we redeemed all $300.0 million aggregate principal amount of the outstanding 4¾% Notes. In conjunction with this redemption, we recognized a loss on early extinguishment of debt of $1.5 million in the first quarter of 2022. In February 2021, we issued the 1.4% Senior Secured Notes and utilized the proceeds therefrom to prepay outstanding term loans under the Credit Agreement. In conjunction with this prepayment, we recognized a loss on early extinguishment of debt of $0.9 million in the first quarter of 2021.

Provision for Income Taxes. The effective tax rates were 26.6 percent and 25.7 percent for the first six months of 2022 and 2021, respectively. The effective tax rate in 2022 was unfavorably impacted by the non-deductible settlement with the European Commission in the second quarter of 2022.


CAPITAL RESOURCES AND LIQUIDITY

Our principal sources of liquidity have been net cash from operating activities and borrowings under our debt instruments, including our senior secured credit facility. Our liquidity requirements arise from our obligations under the indebtedness incurred in connection with our acquisitions and the refinancing of that indebtedness, capital investment in new and existing equipment, the funding of our seasonal working capital needs and other general corporate uses.

On March 28, 2022, we redeemed all $300.0 million aggregate principal amount of the outstanding 4¾% Notes at a redemption price of 100 percent of their principal amount plus accrued and unpaid interest to the redemption date. We funded this redemption with revolving loan borrowings under the Credit Agreement and cash on hand. As a result of this redemption, we recorded a pre-tax charge for the loss on early extinguishment of debt of $1.5 million during the first quarter of 2022 for the write-off of unamortized debt issuance costs.

You should also read Note 6 to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2022 included elsewhere in this Quarterly Report.

For the six months ended June 30, 2022, we used net borrowings of revolving loans of $698.9 million and cash and cash equivalents of $383.6 million to fund the redemption of the 4¾% Notes for $300.0 million, cash used in operations of $351.9 million, decreases in outstanding checks of $225.9 million, net capital expenditures and other investing activities of $120.4 million, repurchases of our common stock of $39.4 million, dividends paid on our common stock of $36.7 million and the negative effect of exchange rate changes on cash and cash equivalents of $8.2 million.
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For the six months ended June 30, 2021, we used proceeds from the issuance of the 1.4% Senior Secured Notes of $499.7 million, net borrowings of revolving loans of $212.2 million and cash and cash equivalents of $244.7 million to fund repayments of long-term debt of $500.0 million, cash used in operations of $209.3 million, net capital expenditures and other investing activities of $116.4 million, decreases in outstanding checks of $84.2 million, dividends paid on our common stock of $31.6 million, repurchases of our common stock of $8.5 million under our stock-based compensation plan, debt issuance costs of $4.9 million and the negative effect of exchange rate changes on cash and cash equivalents of $1.7 million.

At June 30, 2022, we had $675.0 million of revolving loans outstanding under the Credit Agreement.  After taking into account outstanding letters of credit, the available portion of revolving loans under the Credit Agreement at June 30, 2022 was $805.3 million.

Because we sell metal containers and closures used in fruit and vegetable pack processing, we have seasonal sales.  As is common in the industry, we must utilize working capital to build inventory and then carry accounts receivable for some customers beyond the end of the packing season.  Due to our seasonal requirements, which generally peak sometime in the summer or early fall, we may incur short-term indebtedness to finance our working capital requirements.  Our peak seasonal working capital requirements have historically averaged approximately $350 million. We fund seasonal working capital requirements through revolving loans under the Credit Agreement, other foreign bank loans and cash on hand. We may use the available portion of revolving loans under the Credit Agreement, after taking into account our seasonal needs and outstanding letters of credit, for other general corporate purposes including acquisitions, capital expenditures, dividends, stock repurchases and to refinance or repurchase other debt.

We believe that cash generated from operations and funds from borrowings available under the Credit Agreement and other foreign bank loans will be sufficient to meet our expected operating needs, planned capital expenditures, debt service, tax obligations, pension benefit plan contributions, share repurchases and common stock dividends for the foreseeable future.  We continue to evaluate acquisition opportunities in the consumer goods packaging market and may incur additional indebtedness, including indebtedness under the Credit Agreement, to finance any such acquisition.

We are in compliance with all financial and operating covenants contained in our financing agreements and believe that we will continue to be in compliance during 2022 with all of these covenants.

Guaranteed Securities

Each of the 3¼% Senior Notes, the 4⅛% Senior Notes, the 2¼% Senior Notes and the 1.4% Senior Secured Notes were issued by Silgan and are guaranteed by our U.S. subsidiaries that also guarantee our obligations under the Credit Agreement, collectively the Obligor Group.

The following summarized financial information relates to the Obligor Group as of June 30, 2022 and December 31, 2021 and for the six months ended June 30, 2022. Intercompany transactions, equity investments and other intercompany activity within the Obligor Group have been eliminated from the summarized financial information. Investments in subsidiaries of Silgan that are not part of the Obligor Group of $1.4 billion as of each of June 30, 2022 and December 31, 2021 are not included in noncurrent assets in the table below.

 June 30, 2022Dec. 31, 2021
(Dollars in millions)
  
Current assets$1,656.6$1,506.9
Noncurrent assets4,120.64,159.9
Current liabilities1,553.01,159.2
Noncurrent liabilities4,008.64,392.4

At June 30, 2022 and December 31, 2021, the Obligor Group held current receivables due from other subsidiary companies of $41.5 million and $70.5 million, respectively; long-term notes receivable due from other subsidiary companies of $731.2 million and $782.4 million, respectively; and current payables due to other subsidiary companies of $5.4 million and $7.3 million, respectively.
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 Six Months Ended June 30, 2022
(Dollars in millions)
 
Net sales$2,160.6
Gross profit309.3 
Net income127.2 

For the six months ended June 30, 2022, net income in the table above excludes income from equity method investments of other subsidiary companies of $50.4 million. For the six months ended June 30, 2022, the Obligor Group recorded the following transactions with other subsidiary companies: sales to such other subsidiary companies of $21.2 million; net credits from such other subsidiary companies of $38.0 million; and net interest income from such other subsidiary companies of $10.1 million. For the six months ended June 30, 2022, the Obligor Group received dividends from other subsidiary companies of $1.7 million.


Rationalization Charges

We continually evaluate cost reduction opportunities across each of our segments, including rationalizations of our existing facilities through plant closings and downsizings. We use a disciplined approach to identify opportunities that generate attractive cash returns. Under our rationalization plans, we made cash payments of $4.3 million and $3.5 million for the six months ended June 30, 2022 and 2021, respectively. Excluding the impact of our withdrawal from the Central States Pension Plan in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $3.8 million and $7.4 million, respectively. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $0.9 million per year and be recognized annually through 2040, and remaining cash expenditures for the withdrawal liability related to the Central States Pension Plan are expected to be approximately $3.1 million annually through 2040.
You should also read Note 3 to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2022 included elsewhere in this Quarterly Report.
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Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks relating to our operations result primarily from changes in interest rates and, with respect to our international operations, in foreign currency exchange rates.  In the normal course of business, we also have risk related to commodity price changes for items such as natural gas.  We employ established policies and procedures to manage our exposure to these risks.  Interest rate, foreign currency and commodity pricing transactions are used only to the extent considered necessary to meet our objectives.  We do not utilize derivative financial instruments for trading or other speculative purposes.

Information regarding our interest rate risk, foreign currency exchange rate risk and commodity pricing risk has been disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.  Since such filing, other than the changes discussed in Notes 6 and 7 to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2022 included elsewhere in this Quarterly Report, there has not been a material change to our interest rate risk, foreign currency exchange rate risk or commodity pricing risk or to our policies and procedures to manage our exposure to these risks.

 

Item 4.  CONTROLS AND PROCEDURES
 
As required by Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures.  Based upon that evaluation, as of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
There were no changes in our internal controls over financial reporting during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, these internal controls.

In 2021, we acquired Gateway Plastics LLC, Unicep Packaging LLC and Easytech Closures S.p.A. We are currently in the process of integrating the internal controls and procedures of these acquired entities into our internal controls over financial reporting. As provided under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations of the Securities and Exchange Commission, we will include the internal controls and procedures of these acquired entities in our annual assessment of the effectiveness of our internal control over financial reporting for our 2022 fiscal year.
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Part II.  Other Information


Item 1. Legal Proceedings

On July 12, 2022, we announced that we concluded a settlement with the European Commission to end a long-running investigation of our metal packaging operations in Europe. This investigation was started in 2015 by the German antitrust authority and was transferred in 2018 to the European Commission. As part of the settlement, we agreed to pay a fine of €23,852,000 to put an end to the investigation, although we do not fully concur with the facts and legal qualifications put forth by the European Commission. The fine will be payable in the fourth quarter of 2022. The European Commission has agreed to close its investigation and not proceed any further with this matter.



Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

(c) Purchases of Equity Securities By the Issuer and Affiliated Purchasers

The following table provides information about shares of our common stock that we repurchased during the second quarter of 2022:

ISSUER PURCHASES OF EQUITY SECURITIES
    
   
  (c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(d)
Approximate
Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
(in millions) (1)
 (a)
Total Number of Shares Purchased
 (b)
Average Price Paid per Share
 
 
April 1-30, 2022— $— — $300.0 
May 1-31, 202210,967 $41.94 10,967 $299.5 
June 1-30, 2022638,760 $40.54 638,760 $273.6 
Total649,727 $40.56 649,727 $273.6 

(1) On March 4, 2022, our Board of Directors authorized the repurchase by us of up to an aggregate of $300.0 million of our common stock by various means from time to time through and including December 31, 2026.

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Item 6.  Exhibits

Exhibit NumberDescription
  
*22
*31.1
  
*31.2
  
*32.1
 
*32.2
  
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
  
101.SCHInline XBRL Taxonomy Extension Schema Document.
  
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
  
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
  
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
 
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
___________________ 
*Filed herewith.

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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 SILGAN HOLDINGS INC.
   
   
   
Dated: August 4, 2022/s/ Robert B. Lewis                  
 Robert B. Lewis
 Executive Vice President and
 Chief Financial Officer
 (Principal Financial and
 Accounting Officer)

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